You are here

Surety bonds: â€˜A needless cost to healthcare system&rsquo;

WASHINGTON – CMS wants to add a $65,000 surety bond to its bag of tricks to help prevent crooked home medical equipment providers from enrolling in and fraudulently billing the Medicare program.

While industry sources support reducing fraud, they questioned the necessity of surety bonds. They noted that CMS has already implemented a host of other fraud prevention efforts, including requiring accreditation and, just recently, requiring providers in hotbeds like Los Angeles and Miami to re-apply for their Medicare supplier numbers.

“There was a time when requiring surety bonds might have made sense, but now that they’re requiring accreditation, I don’t get the point,” said Jim Walsh, general counsel for The VGM Group and president of VGM Management. “Even the accreditation rules require financial stability. To add surety bonds on top of that now—it’s a needless cost to the healthcare system.”

The Federal Register published CMS’s proposal Aug. 1. The industry now has 60 days to comment.

It’s not the first time CMS has looked to surety bonds to reduce fraud. Back in 1997, the agency wanted providers to take out $50,000 surety bonds, but nothing ever came of the proposal.

CMS’s desire to wipe the cobwebs off surety bonds speaks to the continued pressure the agency feels from Congress to address fraud, said industry attorney Asela Cuervo.

“So far, they still haven’t been successful at hammering down the criminal element that gets into the industry,” she said. “This is another attempt, like accreditation, to take some of that risk and transfer it to the private sector.”

Instead of creating new ways to reduce fraud, however, CMS should focus on enforcing current standards and monitoring not only claims activity but also the National Supplier Clearinghouse, which distributes Medicare supplier numbers, industry sources said.

“You have to admire their public relations skills,” Walsh said of CMS. “Instead of saying we’re firing our NSC contractor for gross incompetence for giving numbers to hundreds of people who have no business being in the industry, they’re saying we’re going to do a demo and have everyone prove again that they’re not a crook.”

AAHomecare’s Walt Gorski agreed that CMS should turn the spotlight on itself.

“The clear message is that CMS and its contractors need to do a better job before letting criminals into the program,” said Gorski, vice president of government affairs. “That should be their first priority, rather than hampering established suppliers and making it harder for them to focus on patient care.”

A few details on CMS’s surety bond proposal:

â€¢ Each provider must obtain a surety bond for each National Provider Indentification (NPI) number. Each new location will require a surety bond.
â€¢ Providers may have to increase the surety amount for each adverse action in the past 10 years. For example, CMS may require a provider with three different revocations to obtain a $195,000 bond ($65,000 multiplied by three).
â€¢ The surety bond requirement would cost about $198 million annually, based on the number of providers (99,000) multiplied by the average annual cost of a bond ($2,000).
â€¢ CMS will consider exempting “large, publicly traded chain providers” from the requirement. While the proposal doesn’t name names, it’s possible the agency means the Lincares, Aprias and Walgreens of the industry. Whether that’s right or wrong, it doesn’t surprise Cuervo. “If you’re a publicly traded company, you’re already regulated by the Securities and Exchange Commission,” she said. “The kind of fraud they’re trying to prevent with this is committed more by fly-by-night companies.”